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28 February, 04:11

A company is offering a bonus plan to its employees. the company will set aside 1% of sales as a bonus. the first year sales are expected to be 5,000,000 and increase 20 % per year. at an interest rate of 10 % what is the present value of this bonus over a 5 year period of time

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  1. 28 February, 06:29
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    Calculating Sales Amount:

    1st Year Sales = $5,000,000

    Every the sales were increased by 20%

    2nd Year Sales = $5,000,000 + ($5,000,000*20%)

    = $6,000,000

    3rd Year Sales = $6,000,000 + ($6,000,000 * 20%)

    = $7,200,000

    4th Year Sales = $7,200,000 + ($7,200,000 * 20%)

    = $8,640,000

    5th Year Sales = $8,640,000 + ($8,640,000 * 20%)

    = $10,368,000

    Calculating Bonus Amount:

    1st Year Bonus Amount = $5,000,000 * 1%

    = $50,000

    2nd Year Bonus Amount = $6,000,000 * 1%

    = $60,000

    3rd Year Bonus Amount = $7,200,000 * 1%

    = $72,000

    4th Year Bonus Amount = $8,640,000 * 1%

    = $86,400

    5th Year Bonus Amount = $10,368,000 * 1%

    = $103,680

    Year Bonus Amount Present Value Factor 10% Present Values

    1 $50,000 0.909 $45,450

    2 $60,000 0.826 $49,560

    3 $72,000 0.751 $54,072

    4 $86,400 0.683 $59,011.20

    5 $103,680 0.621 $64,385.28

    PresentValue $272,478.48
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